A Team Approach - The Key to a Successful Business Sale
Updated: Jan 24, 2020
As a business owner, the sale of your business will be the biggest and, likely, the most important transaction of your life. As a business owner, you have spent your life learning and honing your craft. Most business owners consider themselves strong salespeople and negotiators. Surely you are capable of handling the sale of your business on your own. How complicated can it be?
Having been involved in more than 250 business sales, purchases and valuations, I can tell you that going it alone will cost you tens, if not hundreds of thousands of dollars, and could cost you the chance of even getting a deal done. It is more complicated than most think until they have been through the process. The most successful business sales have been handled with a team approach. In this article, I will outline the people who should comprise your team to ensure the best possible outcome.
The team starts with your staff. It is vital for you to understand how important discretion is with your own staff. When you begin to look at selling your business, you need to keep the situation from the majority of your staff. It can be detrimental to you as a seller, to the buyer and to the staff members themselves. When people learn that the business may be for sale, they get nervous. Nervous people do irrational things. A business sale handled with the right approach will benefit most, if not all, employees.
The employees who need to be involved will depend on your knowledge and involvement with different aspects of the business. Many dealership owners involve their controllers/CFOs in the process, as prospective buyers will want detailed financial information and will have detailed questions. If you are not fully up to speed in this area, you will need help. It may also be necessary to involve your sales or service managers. Fortunately, you do not need to decide up front. You can bring in different players from your team as needed. All employees brought into the process should sign nondisclosure agreements. They need to understand and respect the importance of maintaining full confidentiality.
As you might expect, the sale of a business is a significant tax event. Because of this, it is important to have your accountant/CPA involved in the process. We recommend bringing the accountant in immediately before signing a letter of intent. This gives you an opportunity to edit the offer to accommodate specific tax strategies. Everyone has a different tax situation, so having an accountant who is familiar with your business, personal financial and overall tax situation is critical.
Along with your accountant, it may be necessary to bring a tax accountant or tax attorney in. Depending on the type of deal and its complexity, you will need specific tax advice. As most people know, the tax code is complicated. Your general CPA is often not qualified to advise you at the level necessary.
We recently did a deal where the tax attorney suggested a reverse triangular merger — the formation of a new company that occurs when an acquiring company creates a subsidiary, the subsidiary purchases the target company and the subsidiary is then absorbed by the target company. I would be willing to bet most business accountants would not be familiar with this option. By utilizing this strategy, we were able to avoid a huge tax bill. Depending on your corporate entity, the tax implications in a sale can be tremendous. A C corporation that is sold in an asset sale is subject to double taxation. If you do not know the ways around this, you can leave a great deal of money on the table.
As with tax planning, financial planning is another major component within the process. Most dealership owners who are considering a sale are doing so to fund their retirements. I have had many conversations with potential sellers about their futures and what will be needed to support their preferred lifestyles. Unfortunately, many of them do not really know how to plan this out and determine what will be required after the sale. This is where a financial planner or wealth manager comes in. These folks are experts in planning for the future and mapping out what you will need to live the life you want and have the money you want left for your heirs. They can help with income planning, expense projections, estate planning, investments and a host of other critical items that will have a dramatic impact on your future.
An attorney is the next key resource required in these transactions, however, it cannot be just any attorney. Experience with business sales is a prerequisite here and I would say that knowledge of the office technology industry is an absolute must to ensure success. I participated in a transaction a few years ago where the buyer I was representing wanted to use his attorney. He bragged to me that his attorney was one of the best in the entire
state. This attorney, however, was not skilled in business sales and had no background in office technology. When all was said and done, the attorney missed a major point in
the agreement that allowed the seller to prebill a bunch of service contracts (outside the normal course of business) that cost the buyer $60,000. The “best attorney in the state”
missed something he never should have missed. The bottom line is, not all legal work is alike. Be sure your attorney has experience and a successful track record in mergers and acquisitions or you could be the one losing $60,000.
Finally, you need a broker/investment banker with experience in the industry. It is easy for you, as a seller, to be outmatched by a sophisticated buyer. Many buyers out there
have done many acquisitions. They have expertise and use it to their benefit. There is no replacement for expertise. Handling a sale on your own is like sending a brand-new sales
rep out to close a $100,000 deal with one of your best customers. No dealership owner I know would send a rookie out alone to close a big deal, yet some do this when facing the
biggest transaction of their lives.
You deserve to have expertise on your side of the transaction to balance the scales. Having a broker will also allow for an arm’s-length transaction. Like it or not, selling your business is an emotional roller coaster. You need someone who can remain unemotional when dealing with buyers. A broker can also act as the lightning rod for any animosity that comes up in the negotiation process. As the seller, you need to maintain a strong relationship with the buyer. Any hard feelings about the negotiations should be aimed at the broker.
A broker will also help the transaction progress at a fast pace. Data gathering, due diligence and legal-document negotiation can take a lot of time. Many dealership owners are
so busy running their day-to-day operations that they have little time to run the business sale process like they should.
In my experience, the biggest objection to getting the help required for a business sale has been the expense. When faced with legal fees, accounting fees, investment
commissions and broker commissions, some have opted to go it alone and “save
the money.” This is shortsighted. Money invested in having the right team will pay for
itself many times over. Those who choose to go it alone do not realize what that costs
them until it is too late. Unfortunately, there is no rewind button for business sales.
My advice from participating in more than 200 transactions is simple: Retain the right
advisors and you will definitely come out ahead.